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Saturday, November 26, 2011

Sundaram Brake Linings is a major producer of friction material, consisting of brake linings, blocks, disc pads and clutch facings that are used in automobiles.Ashok Leyland and Tata Motors are the major customers of this chennai based TVS group company.SBL is also exporting its products to various countries and almost 40 % of its income is from exports.Enthused by the increasing demand,recently company started a new production facility in SEZ, Mahindra World City ,Tamilnadu.Now company's all manufacturing plants are producing ASBESTOS-FREE products which will help to increase its exports.

Sundaram Brake Linings was an outperformer from TVS Group till 2008.Its share price never came down below Rs.400 Mark during 2005-2007 period.But it crashed from a level of Rs.440 to just Rs.98/- in 2008 alone .These type of crashes in share price are common today because of share pledging by promoters or various type of frauds.But nobody is expecting such actions from one of the most conservative group from South India - the TVS Group .There was nothing wrong with the Sales and profitability of this company but a special reason for this poor performance of stock price.SBL is a victim of mis-selling of complex derivative products by banks which came to light during 2008.Many other companies like Rajshree Sugar,Precot Meridian..etc are also in news related with such transactions during the mentioned period.Anyway , their efforts to protect from foreign exchange fluctuation ends in huge losses for SBL.Then the company filed cases against these banks and at last it ends in an out of court settlement.As per the terms company is liable to pay only one tenth of the actual loss .Now, company is making provisions in each quarter for this payment and the said amount is mentioned as extraordinary item in the published results.An amount of Rs.5.60 Cr provided last year under this head .After this provision company made a net profit of Rs.6.30 Cr in 2010-11.EPS for last year including special provision is Rs.16 and that excluding this provision is more than Rs.30/-.Even in a tough time for auto parts makers, last quarter company improved its performance.This special provisioning will end in next 18 months starts from September 2011 onwards (in March 2013). The true picture of this company's earnings will reflect in its financial result only thereafter.Company having very small equity base of just Rs. 3.93 Cr and consistently paying dividend of 40 % or more for the past many years. Actually it was more than 125% each before 2008 incident .Considering the Cyclical nature of auto and auto ancillary business and the trend in interest rate , 2013 may be a good year for this sector.After the end of this provisioning , I feels the market will realize the true picture of this company and it will go back to its past glory.At current market price of Rs.155/- it is even quoting very below its book value of Rs.250/-.Company 's debt equity ratio is just 0.38 and not even a single share is pledged by the promoters. Those who are willing to show some patience , this is one of the best bet from this sector @ Rs.155/-

Thursday, November 24, 2011

This story is about a farmer who received a calf from a rich man. Hopeful that the calf will be able to help him have a better life, the farmer did his best to take care of it. But as the calf grew, so did the farmer’s expenses.One day, he said to himself, “I don’t want to wait anymore for this calf to become an ox. I’ll just sell it and buy several sheep which are easier and much cheaper to take care of.”And so he did just that.After several months, he realized that breeding sheep were not as easy as he thought. And so he said to himself, “It takes too long for these sheep to give birth. I better just sell them and buy myself several hens which can lay eggs for me everyday.”And so he did just that.The plan worked very well, he was earning good from selling all the eggs. Life improved for the farmer. But after several months, the hens started to lay less and less eggs until one day, the hens couldn’t produce anymore.The farmer was devastated. In his anger, he cooked all the hens and had himself a feast.Later that week, he remembered the single calf that started it all and realized that after all his hard work, nothing had changed in his life.

Sunday, November 20, 2011

For many of us , Godrej Industries Ltd (GIL) may be a chemical company.But it is more than that .Its stake in Godrej Agrovet(75%),Godrej Consumer products (22 %),Godrej Hershey (43%),Godrej properties(70%) and Natures Basket(100%) makes it an interesting company..Godrej Agrovet is mainly in animal feeds and agri inputs ( mainly herbicides).Company also owns 37000 hectare oil palm plantation in various states like Andhra,Tamilnadu,Goa..etc.Godrej Agrovet also having a joint venture with ' Tyson' in poultry business which is selling processed poultry products under the brand name "Real Good" and value added ready to eat products under the brand name "YUMMIEZ" Company is now planning to expand the operations of this division to many more cities which is limited till now.'NATURE'S BASKET' is a subsidiary of GIL which is operating around 13 stores currently for selling organic fruits and vegetables,beverages,dairy products..etc.Company's this division is expected to brake even shortly and new shop additions are planned. The agri centric business of GIL through Godrej Agrovet having huge potential in India ,and company's latest financials is a reflection of this fact. FMCG business of Godrej CP is also growing rapidly For the Second quarter of this financial year GIL posted a turnover of Rs.1413 Cr over last year same period and a net profit of Rs.82 Cr . EPS for firstSecond is Rs.2.92.This professionally managed company having huge expansion plans it its various businesses and it is expected to show decent growth going forward.GIL can be included in your portfolio at CMP of Rs.186/-

Wednesday, November 16, 2011

Few things in recent times have foxed companies and rattled investors like the mark-to-market (MTM) losses caused by a surging dollar.

Businesses of all kinds are grappling with the phenomenon and looking for ways to soften the blow. Some were caught on the wrong side of the currency movement, with their forex loans bloating in rupee terms while for others, profits dipped even after taking a forward cover - an instrument that is meant to shield them from exchange rate swings.

Indeed, MTM losses on foreign loans will multiply from next year if book-keeping rules are not changed and the rupee fails to recover. On one hand, discussions are underway to make accounting rules more realistic and allow companies to spread out MTM losses on foreign loans in the coming years; on the other hand, many companies are slowly discovering the maze of hedge accounting - a subject that few CFOs took the trouble to grasp, but a complex process that can lower MTM losses.

The flexibility that companies have in amortising losses on foreign loans will end in March. At present, a 10-crore MTM loss on a five-year loan can be absorbed at 2 crore every year over the life of the loan - a practice that cushions the bottom line. If rules are not changed, then from next financial year, the remaining loss (of 8 crore) has to be booked at one go, which can severely impact profitability.

The Accounting Standards Board, a body of senior professionals that initiate changes in accounting norms, is taking a close look at the matter, along with another accounting treatment that artificially inflates fixed assets.

"We should come out with a clear rule so that MTM losses on loans don't have to be provided in one quarter in the times to come. This will lower panic and volatility," said S Santhanakrishnan, a senior chartered account and member of the board.

In preparing balance sheets, companies match the higher loan liability by increasing the value of fixed assets, which many feel is misleading, particularly to lenders, and should be corrected. "If your loan goes up by 10 crore, is there any justification for raising the value of your asset which was financed with the loan? ", said Santhanakrishnan. Perhaps, a more prudent way would be to lower a company's reserves in balancing a higher loan liability.

According to G Ramaswamy, president, The Institute of Chartered Accountants of India (ICAI), the issues are being debated. "No decision has been reached. This has also assumed significance because several companies have booked MTM losses." So far, 12 Nifty companies have booked 3,120 crore MTM losses this quarter against a gain of 2,225 crore in the year-ago period.

HOW MTM LOSSES ARISE

With the dollar at 50, there will be 10-crore MTM loss on an unhedged $10-million foreign loan taken when dollar was 40. Here are other cases where MTM losses can crop up:

1) A company entering into a forward contract in early August with a bank to sell its export receivables (that's expected in December) will have to book an MTM loss when it announces the results for September 30. If the rupee has dipped 4 between August and September 30, the MTM loss is 4 for every dollar as on September 30.

But this is a notional loss that reflects a lost opportunity for the company to sell at a more lucrative exchange rate. Even though there is no real hit, stock prices fall as soon as results are announced. But a company is not required to show the MTM loss if it pursues hedge accounting which only some large companies have adopted.

"One reason for this is the level of complexity involved and the awareness. Although hedge accounting can be complex, for simple transactions (like sale of export receivables), it can be simplified and implemented on a larger scale," feels Kumar Dasgupta, partner,Price Waterhouse.

2) Companies that have swapped their expensive rupee loans into cheaper dollar loans through currency derivative deals also lose out badly when dollar gains. In a sharp depreciation, the loss on account of a stronger dollar can more than offset the savings in interest outgo. There is MTM loss on the derivative (like the forward contract) at the quarter end.

3) Since commodity prices are closely linked to global prices, commodity companies often pursue a different strategy. For them, a rise in dollar (say, from 40 to 50) is actually a gain: if the global price is $700 a tonne, then the local price rises from 2,800 to 3,500 a tonne.

But many of these companies swap their rupee loans into dollars to offset the loss from a weakening dollar. They book MTM loss on the loan swap derivative. Also, when dollar appreciates sharply, the local price of the commodity corrects only after a month or two.

Sunday, November 13, 2011

Tokyo Plast International is the manufacturer of “PINNACLE ‘ brand Thermoware products. Company's main products are Thermo Containers,Insulated coolers,Beverages containers..etc. considering the increasing popularity of Pizza Consumption ,recently company introduced single and double layered Pizza containers .Company having two manufacturing units – one located at Kandla and other at Daman. Company is concentrating in exports and earned an income of Rs.45 Crore (out of total sale of Rs.50 cr ) from exports last year . Its total income tripled in last five years where sales improved from Rs.14 Cr to Rs.50 Cr and bottom line from just Rs.7 lac to Rs.4.3 Cr in the said period. In last few years promoters also hiked their stake marginally. Chances are also there for expanding the business into the manufacturing of other related housewares in future . Company is expected to close this full year with an EPS of Rs.6+ . At current market price Rs.15/- it is trading at a P/E multiple of just 2.5 on the expected full year EPS of FY 2011-12 . Considering the steady growth of topline it shows in the past many years and recent efforts to introduce value added new products – which is expected to improve the margins- Tokyo plast is a suitable low priced scrip for investors with patience . Currently trading both in NSE and BSE at a price around Rs.15/-

Friday, November 11, 2011

Haritha Seating Systems is a Chennai based company belongs to TVS Group.This company belongs to the well known TVS Group and promoted by Sundaram Clayton Ltd. Harita makes seats for two-wheelers, commercial vehicles,tractors and buses. It is also in the field of poly urethane productsbusinesses to different segments of the auto industry . Harita SeatingSystems has manufacturing facilities in Hosur, Ranjangaon near Pune and atNalagarh in Himachal Pradesh. It was earlier known as Haritha Grammer and hada joint venture with Grammer AG of Germany till 2002.In 2002 company pulls out of joint venture and its name changed to Haritha Seating Systems.Company has another joint venture with German based Fehrer for making two wheeler seats ,which is known as Harita Fehrer Ltd.Company’s client list consists of auto majorslike Tata Motors, Ashok Leyland, Mahindra & Mahindra, Tafe, John Deere, New HollandTMTL, Escorts, Caterpillar,BEML, Telcon, L & T Komatsu and Volvo.Company alsosuppliers seats to body builders Jaico, SM Kannappa, ACGL, Amar Coaches, IRIZAR TVSVeera Vahana, HNS Coaches, Damodar coach,Bharat Coach etc. Last year company posted aturnover of Rs.225 Cr and a net loss of Rs.5 Cr .Company is in a turnaround pathin this FY and posted a sales of Rs.104 Cr and a net profit of Rs.5 Cr inthe first half itself.In the short to medium term auto ancillary companies mayface some margin pressure , but long term investors may take it an opportunity tobuy good auto ancillary stocks like Haritha .It is currently trading @ Rs.72.

Thursday, November 10, 2011

In the late 1990s, when technology companies were flourishing, growth investing techniques yielded unprecedented returns for investors. But before any investor jumps onto the growth investing bandwagon, s/he should realize that this strategy comes with substantial risks and is not for everyone.

Value versus Growth
The best way to define growth investing is to contrast it to value investing. Value investors are strictly concerned with the here and now; they look for stocks that, at this moment, are trading for less than their apparent worth. Growth investors, on the other hand, focus on the future potential of a company, with much less emphasis on its present price. Unlike value investors, growth investors buy companies that are trading higher than their current intrinsic worth - but this is done with the belief that the companies' intrinsic worth will grow and therefore exceed their current valuations.

As the name suggests, growth stocks are companies that grow substantially faster than others. Growth investors are therefore primarily concerned with young companies. The theory is that growth in earnings and/or revenues will directly translate into an increase in the stock price. Typically a growth investor looks for investments in rapidly expanding industries especially those related to new technology. Profits are realized through capital gains and not dividends as nearly all growth companies reinvest their earnings and do not pay a dividend.

No Automatic Formula
Growth investors are concerned with a company's future growth potential, but there is no absolute formula for evaluating this potential. Every method of picking growth stocks (or any other type of stock) requires some individual interpretation and judgment. Growth investors use certain methods - or sets of guidelines or criteria - as a framework for their analysis, but these methods must be applied with a company's particular situation in mind. More specifically, the investor must consider the company in relation to its past performance and its industry's performance. The application of any one guideline or criterion may therefore change from company to company and from industry to industry.

The NAIC
The National Association of Investors Corporation (NAIC) is one of the best known organizations using and teaching the growth investing strategy. It is, as it says on its website, "one big investment club" whose goal is to teach investors how to invest wisely. The NAIC has developed some basic "universal" guidelines for finding possible growth companies - here's a look at some of the questions the NAIC suggests you should ask when considering stocks.

1. Strong Historical Earnings Growth?
According to the NAIC, the first question a growth investor should ask is whether the company, based on annual revenue, has been growing in the past. Below are rough guidelines for the rate of EPS growth an investor should look for in companies of differing sizes, which would indicate their growth investing potential:

Although the NAIC suggests that companies display this type of EPS growth in at least the last five years, a 10-year period of this growth is even more attractive. The basic idea is that if a company has displayed good growth (as defined by the above chart) over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years.

2. Strong Forward Earnings Growth?
The second criterion set out by the NAIC is a projected five-year growth rate of at least 10-12%, although 15% or more is ideal. These projections are made by analysts, the company or other credible sources.

The big problem with forward estimates is that they are estimates. When a growth investor sees an ideal growth projection, he or she, before trusting this projection, must evaluate its credibility. This requires knowledge of the typical growth rates for different sizes of companies. For example, an established large cap will not be able to grow as quickly as a younger small-cap tech company. Also, when evaluating analyst consensus estimates, an investor should learn about the company's industry - specifically, what its prospects are and what stage of growth it is at. (See The Stages of Industry Growth.)

3. Is Management Controlling Costs and Revenues?
The third guideline set out by the NAIC focuses specifically on pre-tax profit margins. There are many examples of companies with astounding growth in sales but less than outstanding gains in earnings. High annual revenue growth is good, but if EPS has not increased proportionately, it's likely due to a decrease in profit margin.

By comparing a company's present profit margins to its past margins and its competition's profit margins, a growth investor is able to gauge fairly accurately whether or not management is controlling costs and revenues and maintaining margins. A good rule of thumb is that if company exceeds its previous five-year average of pre-tax profit margins as well as those of its industry, the company may be a good growth candidate.

4. Can Management Operate the Business Efficiently?
Efficiency can be quantified by using return on equity (ROE). Efficient use of assets should be reflected in a stable or increasing ROE. Again, analysis of this metric should be relative: a company's present ROE is best compared to the five-year average ROE of the company and the industry.

5. Can the Stock Price Double in Five Years?
If a stock cannot realistically double in five years, it's probably not a growth stock. That's the general consensus. This may seem like an overly high, unrealistic standard, but remember that with a growth rate of 10%, a stock's price would double in seven years. So the rate growth investors are seeking is 15% per annum, which yields a doubling in price in five years.

An Example
Now that we've outlined the NAIC's basic criteria for evaluating growth stocks, let's demonstrate how these criteria are used to analyze a company, using Microsoft's 2003 figures. For the sake of this demonstration, we'll discuss these numbers as though they were Microsoft's most current figures (that is, "today's figures").

Both of these are strong figures. The annual EPS growth is well above the 5% standard the NAIC sets out for firms of Microsoft's size.

2. Strong Projected Earnings Growth

• Five-year projected average annual earnings growth is 11.03%.

The projected growth figures are strong, but not exceptional.

3. Costs and Revenue Control

• Pre-tax margin in most recent fiscal year is 45.80%.
• Five-year average fiscal pre-tax margin is 50.88%.
• Industry's five-year average pre-tax margin is 26.7%.

There are two ways to look at this. The trend is down 5.08% (50.88% - 45.80%) from the five-year average, which is negative. But notice that the industry's average margin is only 26.7%. So even though Microsoft's margins have dropped, they're still a great deal higher than those of its industry.
4. ROE

Again, it's a point of concern that the ROE figure is a little lower than the five-year average. However, like Microsoft's profit margin, the ROE is not drastically reduced - it's only down a few points and still well above the industry average.

5. Potential to Double in Five Years

• Stock is projected to appreciate by 254.7%.

The average analyst projections for Microsoft suggest that in five years the stock will not merely double in value, but it'll be worth 254.7% its current value.

Is Microsoft a Growth Stock? On paper, Microsoft meets many NAIC's criteria for a growth stock. But it also falls short of others. If, for instance, we were to dismiss Microsoft because of its decreased margins and not compare them to the industry's margins, we would be ignoring the industry conditions within which Microsoft functions. On the other hand, when comparing Microsoft to its industry, we must still decide how telling it is that Microsoft has higher-than-average margins. Is Microsoft a good growth stock even though its industry may be maturing and facing declining margins? Can a company of its size find enough new markets to keep expanding?

Clearly there are arguments on both sides and there is no "right" answer. What these criteria do, however, is open up doorways of analysis through which we can dig deeper into a company's condition. Because no single set of criteria is infallible, the growth investor may want to adjust a set of guidelines by adding (or omitting) criteria. So, although we've provided five basic questions, it's important to note that the purpose of the example is to provide a starting point from which you can build your own growth screens.

Conclusion
It's not too complicated: growth investors are concerned with growth. The guiding principle of growth investing is to look for companies that keep reinvesting into themselves to produce new products and technology. Even though the stocks might be expensive in the present, growth investors believe that expanding top and bottom lines will ensure an investment pays off in the long run.

Monday, November 7, 2011

Advanta India is a true MNC in agriculture sector from United Phosphorous Group. It is the holding company for the global business of Advanta. Company is operating in various countries includes India, Australia, Thailand, Argentina USA ..etc .Company is a major player in research, production and marketing of hybrid seeds and oilseed crops . Company also having a very good R&D and in India it is collaborating with universities like University of Mysore and University of Dharwad for developing new varieties. Company is producing wide variety of seeds include sunflower, corn, rice, rapeseed mustard, sorghum Oats ..etc. This geographical and product diversification reduces the risk of seasonality to a certain extend in this business. In Thailand ,company is operating through Pacific Seeds(Thai) Ltd ,in Australia it is with Pacific seeds Pty Ltd, and in Argentina it is through Advanta seeds and Advanta Semillas . Company also made some acquisitions in USA like Crosbyton Seed Company and Garrison & Townsend Seed Company along with a subsidiary Advanta US Inc. Many more mid size companies are also in its fold as step down subsidiaries like Nutrisun oil . A major negative of this company till now is the huge debt of in its balance sheet . Interest of the same is eating a major part of its profits. Advanta is now planning to de- leverage .As a first step company recently re-structured its debt by issuing FCCB and repaying part of debt carrying high interest rate .Effect of this arrangement is already visible is latest September qtr result. On a consolidated basis company posted a turnover of Rs. 696 Cr and a net profit of Rs.27 Cr in last year .For the latest qtr ended September , Company posted a sales of Rs. 254 Cr v/s Rs.176 Cr. and a net profit of Rs.13 Cr v/s Rs.10 Cr After a long period of up and downs in its performance, it is expected to show a steady growth from here on.At current market price of Rs.395 , it is a good BUY for medium to long term investment.